Qantas, Virgin too powerful to be held hostage over fees: airports

Australia's two major domestic airlines have too much market power to let airports hold them hostage to unreasonable fees, according to the airports' lobby group, which says Qantas and Virgin are using their duopoly position to bump up airfares and play hard ball with regional airports.

The Australian Airports Association (AAA) has also told a Productivity Inquiry that introducing new controls on how much airports charge airlines to use their runways, terminals and other infrastructure could hinder investment that has brought in competitors and lower international fares to Australia.

The submission into the inquiry into airport regulation follows claims from the nation's airlines that they are being gouged by Australia's monopoly airports, and that bringing fees under control would lead to lower airfares and a range of wider economic benefits.

In its submission, AAA said Australia "has one of the most concentrated domestic aviation markets in the world", dominated by two companies - Qantas and its offshoot Jetstar, and Virgin and its subsiduary Tigerair - which had significant power when negotiating terms with airports.

Advertisement

While airlines could choose to fly their aircraft on different routes if they did not like an airport's fees, airports could not choose their customers, the group said.

Loading

AAA highlighted a long-running dispute at Townsville Airport, where Qantas has refused to pay a $3 per passenger increase in fees to fund a terminal expansion, as an example of airlines using their market power "to the detriment of competitors, airports and the travelling public".

Qantas has described the Townsville upgrade, which includes a significant increase to retail space, as "gold-plating".

The group also submitted figures showing airports were offering steeper discounts to their published rates now than six years ago (24 per cent for domestic routes compared to 17 per cent in 2012), which reflected "robust and direct commercial negotiations".

AAA said the nation's major airports had invested $10 billion in upgrades to aeronautical assets over the past 15 years, making it possible for an influx of new international carriers to start flying to our shores. That competition had driven down international airfares by 40 per cent since 2006 in real dollar terms, it said.

Total passenger numbers more than doubled between 2002 and 2017, from 76 million to 159 million.

Meanwhile the 40 per cent price rise in domestic airfares since 2013 "cannot be attributed to changes in airport charges".

“We have also seen greater competition between airports for new international services as it has become more economic for airlines to establish direct services across the country," said AAA's chief executive Caroline Wilkie.

“This is not only benefiting airline efficiency, but is supporting more competition in the market so passengers can access lower airfares.”

Bringing in price controls or an onerous arbitration system, which the airlines are calling for, risked undermining the case of the type of investment at airports that was driving down airfares, the group said.

Loading

Airport fees account for about 8 per cent of domestic airfares and about 11 per cent of return international fares, AAA said, adding that theoretically a 50 per cent reduction in airport charges would only led to a 5 per cent reduction in airfares, if passed on entirely.

But there was no evidence that airlines would pass on these savings, and it was most likely such a move would enhance profits of the airlines, the group said.

AAA said that the returns on aeronautical assets at Sydney and Melbourne airports has fallen over the past decade, and risen at Brisbane and Perth, while their return on capital employed of between 5 and 8.5 per cent was below the average of its global peers at 9.3 per cent.

The numbers showed that airports were not setting prices or making profits the reflected unfair use of market power, AAA said.